Dan Amoss has added a new twist to the “100-F” teaser that I wrote about here a couple months ago, so I’m adding a new twist as well. He’s now calling this “Retirement Recovery Insurance,” and using examples of folks like laid-off auto workers who are using this strategy to make more money than they made when they were working.
With the incredibly dramatic fall in the markets just over these past three weeks, the appeal of a strategy that bets against the market — or that specifically searches out weak stocks to bet against — almost doesn’t need to be stated. I’m including most of what I wrote about this teaser below, with the explanation of what 100-F documents are.
But as we get started I do just want to offer a small reminder that momentum runs both ways, and the investment decisions that are comfortable are not necessarily those that are most profitable in the long run. To some degree, overloading your portfolio on the short side today is not too different than buying internet stocks in 2000 — it’s expensive, and it’s popular. Could still be right, but the odds might be challenging.
100-F Documents, of course, are nothing but a made-up name that sounds official …
Dan Amoss says that the “100-F Document” is filed in Washington, D.C., and will give you inside information into a company’s troubles, and let you bet against the company before it makes headlines.
And it’s all part of an ad from Dan Amoss for his Strategic Short Report newsletter — we’ve looked at these before, when we dug into what he called the “Paddle Strategy” for profiting in a bear market. To tell the truth, this ad is actually quite similar to that previous one, though I’ve not heard a lot from Dan Amoss in the interim (that Paddle Strategy campaign was back in January).
So what are we looking for?
Here’s the lead-in to the ad:
“Fired Auto Worker Quadruples His Money With ‘Retirement Recovery Insurance’ . . . During the Worst Market Bust in Recent Memory!
“‘I’m making more now than I made during my last three years at work,” he tells me. “I almost feel guilty at all the money I’ve made.’
“And he’s not alone.
“In the most violent ‘whipsaw’ market since the 1930s, this handful of stock market players and amateurs combined say they’re already up 327%… 250%… 491%… 292%… 372%… and 567%…
“Even as just about all the highest profile and so-called “safe bet” blue chip stocks on Wall Street have crashed and burned!
And after that drool-enducing lead-in he gets into the 100-F stuff …
A ‘Hidden’ Government Document That
Lets You Gain on Crashing Stocks . . .
“You see, at least 58 times a year, the U.S. government quietly issues documents that can reveal to you…
“Which stocks are about to go up… which are about to crash… and which you can use to make a fortune.
“As much as 400% over the weeks ahead.
“They’re just people like you and me, doing this.
“Some are retired. Others are still working.
“And what they’ve all discovered is a surprising way to use what I call “100-F documents”… a set of government-mandated reports that could have told you in advance that Wall Street’s latest “time bomb” stocks were about to blow apart.
“But this is much bigger than just avoiding losses.
“Because what I’ll show you is that by getting a better idea of what the next round of stocks will be to go down, you can use a very simple strategy to turn those falling shares into gains that go nowhere but up.”
What the heck could that be? You know that we loooooove secret government documents here at StockGumshoe.com … even if you put the “secret” in quotes.
But unfortunately, this secret is just a little silly, and not all that secret. You see, 100 F Street NE is the street address for the Securities and Exchange Commission right here in my home town of Washington, DC.
So yes, 100-F documents are just SEC filings. You know, the same stuff you read almost every day if you’re an active investor — 8K reports, 10-K annual reports, Form 4 insider trading filings, etc.
It’s valuable stuff, but it ain’t secret.
And despite what Dan tells us in the ad, the SEC filings of this magnitude do in fact have a big impact on stocks, regardless of whether or not the news makes the front page of the paper — the active and institutional investors who most influence prices are obviously watching SEC filings of all types.
And these are not particularly secret kinds of filings, either — for the most part, he’s just talking about the SEC-filed versions of the quarterly reports that we all hear about four times a year for virtually every US public company.
A few months ago, Dan used a similar ad to claim prescience in choosing some of last year’s weaker stocks. Here are a couple examples he gave then of how one could have potentially profited from these “100-F” document filings:
“On Sept. 5, 2007, shares of Krispy Kreme would have set you back $6.26. Sounds like a bargain for a doughnut maker that once traded near $50 — but on Sept. 6, 2007, a “100-F document” filed in D.C. revealed it could go lower. And it did, sliding to $3.24 just four days later.”
“For nearly 14 years straight, Starbucks shares looked like portfolio caffeine…soaring to $41 per share. But a deeper look at the company’s “100-F documents” revealed a slip in store traffic…and the steam was off the mug. By November 2007, shares hit $24…when “100-F documents” filed on Nov. 15 and Nov. 29 exposed more bad news. By April this year, shares hit a low of $15.66.”
We’ll take them in turn, shall we?
That Krispy Kreme filing on September 6, 2007? That was their normal quarterly earnings report, their 10-Q. And it was awful. It was filed after the market close, and any KKD investor would have doubtless noticed it. The shares collapsed the next morning, closing the following day at $3.91 (they had been over $6 before the earnings release). They did dip further after that, and were at $3.24 a few days later — but you would have been hard pressed, as an investor, to decide whether the shares would dip further from $3.91 in the next few days, or whether they might recover a little bit, and there was nothing secret about the contents of the 10-Q.
Dan Amoss is implying that the information in the SEC filing would have enabled you to profit by betting against the stock when it fell by buying put options (which is certainly less risky than shorting stocks). That’s true, to some extent, but those put options would not have been cheap when the shares had already fallen 30% or so in a day, and he does not promise to have a time machine that could take you back to the prior trading day to bet against the shares at $6.
Essentially, this is an assertion that stocks that get clobbered by very bad earnings reports or similar data releases will keep going down after they get the initial clobbering. That’s certainly frequently the case, as investors who held through the first few hours of cataclysm lose faith in the following days and the herd of analysts downgrades the stock, but it’s far from guaranteed. That particular stock had big intraday moves of 10% or more for quite a while following the earnings release, so it would have been a wild ride trying to pick entry points for short trades.
And the next one? Starbucks?
That filing was also nothing secret — the earnings release for Starbucks came out on November 15, and the more detailed 10-K annual report on the 29th. Both were bad.
And one needn’t have looked deep in the bowels of those SEC filings to note that the store traffic had slowed for the first time, freaking out investors — that was in the lead paragraph of a large number of articles from pretty much every source you could pick in the financial press (Forbes, Motley Fool, etc.) by the next morning. And the share price did fall, by about 8% the next day (it had already fallen about 40% in 2007, so that wasn’t a huge shocker). And they continued to fall … if you had decided that the fact that Starbucks had a bad year, and was losing store traffic, meant that the shares would continue to founder, you could indeed have profited (and continued to profit until today) by buying some put options or shorting the stock. But that basic trend in the company’s business was publicly known, and widely discussed — some people thought it was important, other folks thought that SBUX would recover and that this was a buying opportunity, but the point is that the information wasn’t hidden in an SEC filing that few people read, it was in the regular annual and quarterly reports, and it was well-covered by the press.
And in this new version of the ad, he uses three other examples that will be very familiar to most Gumshoe readers — E*trade, Circuit City, and Citibank.
Interestingly enough, in the examples he provides he does claim to have written negatively about Citibank before it fell from the $40s to the teens, and that he called it a “house of cards” — that’s fine, and certainly a reading of their balance sheet would have led to some pessimism, so if he had his subscribers buy puts against Citigroup a year ago they would have undoubtedly done very well.
But in E*trade and Circuit City he gives no such specifics and makes no such claims — those stocks are just examples of companies that fell dramatically because of poor balance sheets, or weak performance. There were folks warning us about both of those stocks back then, but apparently Amoss was not among them — he claims only that it would have been possible to profit from their downfall, not that he recommended that his subscribers do so. That’s like showing some graphs and explaining how investors could have profited from Google’s move from $85 to $700 after the fact — anyone can find past examples of stocks that went either down or up dramatically, it’s future examples that are a bit tougher to locate.
Anyone can cherry pick a few of their best ideas to use in an ad — it’s easier for a short seller to make the compelling arguments in the current environment, just as it would have been easier for a momentum growth investor like Navellier to sell his arguments last year.
But what is Dan Amoss really talking about this time?
Well, this is just a long-winded way of saying that Dan is apparently using fundamental analysis to decide which stocks to bet against by buying put options — he claims to be going off of data in the SEC filings, which is smart, but his ability to read SEC filings (something you could easily do, too) does not mean that he has secret information that promises a declining stock. He argues that the increasing complexity of SEC filings means that it takes longer for the “secret” info to leak out about just how poorly they’re performing, which is probably true to some extent, though I’d argue that in the current environment there’s more scrutiny for many of these filings, particularly in hot stocks or financial companies, than there was in years past.
If you’re looking for someone to supply you with recommendations for stocks to bet against, you might want to give Dan’s service a shot — I think he charges about $1,000 a year, and I don’t have any idea what his record is (everyone has some good picks they can cherry pick, as he does mightily in this letter, but he doesn’t say anything about his average returns and I know of no third party who could verify that record, anyway). Just don’t think that he’s going to show you secret 100-F documents that you couldn’t easily get yourself, what he’s selling is his ability to make bets against stocks based on the information in their official filings.
Do note, however, that this is an options trading strategy — buying put options and hoping to sell them back at a higher price before they expire. That’s less risky than actually shorting stock, but it also means that you have to be good not just at predicting stock behavior, but that you have to be right about the timing.
To that end, I noted with some surprise that one of the examples Amoss uses in this ad is Nutrisystem — and his writeup makes it sound, to a careful reader, as though he would have been unable to help you make any money on this bet.
He claims to have foreseen the problems at Nutrisystem in May of 2006, when it was still very popular and the stock was going up, though it was fairly near its highs. He even included a snippet of the text he said he sent to subscribers back then, and I’m willing to believe he’s being honest about that.
But in the next paragraph, he explains that “what happened next” was a fall from $60 to $25. The only problem is that this “next” started about 15 months later, in September of 2007, and the fall took place over the remainder of that year (and it fell further this year). He put a little circle on the chart to say that the “100-F” filings revealed a “chance to strike” in September, and that the January 2008 puts would have climbed dramatically.
Of course, if you had made a similar bet back when Amoss apparently actually told his subscribers about his concerns, you would have had a good chance of making nothing, or losing all your money — rarely does an options trader make money if the future he predicts takes 15 months to come true.
If you’d like a little chatter about the criteria Amoss talks about as reasons why he bets against a stock, you could start with my earlier writeup on the Paddle Strategy — he isn’t all that specific about his strategy or what he looks for in a short bet, but I made a few guesses … and if you have things you look for that are particular stock-moving negatives, feel free to share them here.
I will say, though, that Dan brings up an important point — when you’re interested in a stock it always pays to read those “100-F” filings — especially the 10-K (annual report), since it always includes, among many other things, a pretty honest assessment of what the company thinks are the risks that could impact their stock or their business. Unless you’re a technical or short-term trader who doesn’t much care about a company’s long-term fundamentals and business prospects, reading a company’s annual report should be at least the very minimum level of work you do before buying shares of stock.
Oh, and if you ever do want to read those 100-F filings yourself, just go to the SEC Edgar database, put in your stock ticker, and you’ll get an eyeful (the SEC also has a pretty decent guide to basic company filings and research in Edgar, if this is all Greek to you).
One last note, though this is already getting ridiculously long: It may be that the market continues to collapse in the months to come, and that buying put options is a reasonable way to profit from this … or that it’s worthwhile to use puts to hedge some of your positions to help avoid losing too much money.
But as I said at the top, that trade is very popular now, which means it is much more expensive than it would have been a year ago — when you hear folks talking about the “VIX” fear index being at all time highs, remember that the VIX is just a measurement of volatility that uses options trading data. When the VIX is high, it means that options prices are high — meaning that the options traders are predicting huge moves in stocks. That means premiums are higher, which, just to beat a dead horse, means that it will cost you more to buy a put option than it would have in a similar situation six months ago.
The pessimism and the falling market may work for you, and put options are a reasonable tool for hedging your bets or speculating on falling stocks … but in many cases these days, you’ll be looking for puts that you’ll buy at a high price relative to their current value, and hoping to sell at an even higher premium in the near future. “Buy high and sell higher” works well … until it stops working. And when it stops working, it often does so in a big hurry.
It's Personal Capital -- they've got half a million people using it already, and I use it to understand all of my personal accounts, from mortgages to investments, and keep track of them and help me visualize how I'm diversifying and whether I'm meeting my financial goals. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.